Awards for Excellence 2009: South Africa

Best Bank: Absa Best Investment Bank: Investec

Last year the rand was one of the world’s worst-performing currencies. This year, it has been one of the best. The extreme volatility of commodity prices over the past 12 months has been partly to blame.

In the past 12 months the credit environment in South Africa has deteriorated and this might continue since more jobs are being lost. The longer-term outlook might be rosy because of demand for commodities in Asia. An infrastructure programme and rising public investment might also be beneficial to the economy.

Last year, however, much of the problem was attributable to interest rates that had been rising for three years. Although the fall in property prices has only been of a few percent, Standard Bank, First Rand, Absa and Nedbank, the country’s biggest financial institutions, all reported rises in loan impairments last year.

Nedbank, the smallest of the four, posted a profit increase of 5.4%. First Rand Bank, the second biggest, reported a slight fall in net profit. South Africa made up a lower percentage of the assets of Standard Bank, the biggest South African lender, even as the country accounted for a larger proportion of the bank’s non-performing loans. As Standard Bank’s revenue from the rest of Africa rose, its revenues from South Africa declined (partly because the group received less income from its insurance subsidiary, Liberty, partly thanks to lower yields on government securities and lower equity prices). Standard Bank’s overall net profit rose by 1% last year.

The best performer of the year was therefore Absa, an institution that, unlike Standard Bank, derives its income almost entirely from South Africa. Absa’s net profit grew by about 12% last year, even though its impairment losses on loans and advances rose 140% (Standard Bank’s credit impairment charges were up 147%). Absa Capital, the investment banking unit, also performed well, especially in debt, and grew attributable earnings almost 30%.

Standard’s performance in pan-African investment banking was strong. But in South Africa alone, the institution that really stood out, with the best claim to strength if one takes in M&A, debt and equity together, was local firm Investec. Investec’s operating profit in southern Africa rose 63% last year, and it is easy to see why, even if its operations have been more limited outside South Africa.

The contest between JPMorgan, Standard Bank and Investec was close. But Investec wins because it did more deals, often with no other bank participating. Investec also got involved in project finance – unlike JPMorgan, perhaps its closest contender.